Journal of Risk and Uncertainty

, Volume 12, Issue 2, pp 113–140

The economics of catastrophes

  • Richard Zeckhauser

DOI: 10.1007/BF00055789

Cite this article as:
Zeckhauser, R. J Risk Uncertainty (1996) 12: 113. doi:10.1007/BF00055789


Catastrophes can profitably be thought of as economic events. This essay begins by considering the consumption of catastrophes, stressing the way that we disseminate information about them, and respond, possibly on a nonrational basis. Catastrophes are produced through a combination of actions by nature and humans. Due to inappropriate incentives, human actions often exacerbate outcomes. This is particularly true in “micromotive” situations, such as the AIDS epidemic, where actions by many players produce a collectively bad outcome. Mechanisms to prevent or ameliorate catastrophes—liability, insurance, and government regulation—are considered.

Key words

catastrophe risks incentives micromotives flood 

Copyright information

© Kluwer Academic Publishers 1996

Authors and Affiliations

  • Richard Zeckhauser
    • 1
  1. 1.Kennedy School of GovernmentHarvard UniversityCambridge